Press release

MEDICARE DRUG COSTS DROP SUBSTANTIALLY

Medicare’s new drug coverage will have significantly lower premiums and lower costs to federal taxpayers and states, as a result of stronger than expected competition in the prescription drug market and lower drug costs, CMS Administrator Mark B. McClellan, M.D., Ph.D, announced Thursday.

Beneficiary premiums are now expected to average $25 a month – down from the $37 projected in last July’s budget estimates – and the overall cost to taxpayers for 2006 will drop 20 percent over the July 2005 estimate, according to the CMS Office of the Actuary. The savings result from lower expected costs per beneficiary; projected enrollment in the drug benefit has not changed significantly.

“Our report shows that the cost of the program will be about 20 percent less in 2006,” HHS Secretary Mike Leavitt said. “Costs are going down even as enrollment is going up. This is good news for seniors, taxpayers and the Medicare program.”

“The new drug coverage is the most important new benefit in Medicare in 40 years, and as a result of strong competition in the prescription drug marketplace, it will cost much less than had been expected,” Dr. McClellan said. “With lower prices, more use of generic drugs, and other effective steps to slow down drug spending, the winners are the beneficiaries and the taxpayers.”

The net cost to the federal government for the drug coverage in 2006 is expected to be $30.5 billion down from a previously estimated $38.1 billion. The actual or “net” costs to the Federal government, accounting for Medicaid savings, are also significantly lower over 10 years, dropping from last year’s estimated $737 billion to $678 billion. For the 10-year period from 2006-2015, the “total” Medicare drug benefit cost, without accounting for Medicaid savings, is now estimated to be about $130 billion less - $797 billion compared to an estimated $926 billion last year.

State government savings are the result of lower phased-down contributions for the drug coverage. The state payments are now projected to be $37 billion (27 percent) less over a 10-year period. The Medicare Modernization Act included the phased-down contributions, sometimes known as “clawback” payments, to account for a portion of the costs that states had previously paid for Medicare beneficiaries who are also in Medicaid, because they are now getting their drug coverage from Medicare.

As of last month, about 24 million Medicare beneficiaries now have drug coverage, with about 3.6 million self-enrolled in the new “stand-alone” prescription drug plans and around 300,000 new enrollees in Medicare Advantage plans with drug coverage.